Austin Texas Estate Planning Blog

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10 reasons Women must have a Wealth plan

September 27, 2021 • | Law Office of Zachary D Kamykowski, PLLC
Having a wealth plan can empower women to overcome persistent and compounding financial disadvantages

Wealth planning can overcome persistent and compounding financial disadvantages

Having a wealth plan in place can help women increase their chances of achieving their life and legacy goals. An estate plan can help you manage your assets when you can no longer can, whether because of incapacity or death. Having a plan for a secure retirement ensures that you maintain your financial independence and meet your legacy goals. With a comprehensive wealth plan, you can ensure that you meet your financial goals today, tomorrow, and beyond.

Women face financial discrimination throughout their lives. Through persistent wage disparities, they earn less than men for similar work. Women live longer and thus must make less money stretch farther. Women have a greater chance of career disruption due to care for children and elderly parents. The burden of this care may interrupt their ability to earn and save more. It may also require the early withdrawal of retirement funds. Women tend to invest too conservatively and risk not earning the returns that they will need to grow their savings sufficiently to ensure a secure retirement.

Their suspicion (sometimes warranted) of the financial industry may mean that they miss out on optimization opportunities that would increase their financial security. Divorce generally lowers women's living standards. Having potentially put their careers on hold to care for children and the household, women may find their skills have deteriorated substantially when they try to reenter the job market (for less pay, in any event).

Living longer, with fewer savings, may limit women's social circle as they face increasing frailty. This tends to leave them more vulnerable to elder abuse.

With such persistent and unjust financial disadvantages, planning becomes even more important for women. The opportunity to optimize wealth as much as possible through governing document coordination, portfolio allocation, asset location, etc. will improve women's financial security.

1. Wage gap (earn less, for fewer years)

Women earn less than men. In 2020, women over 16, on average, earned 82.3% of what men earned. That would mean that women will essentially work for free from January 1, 2022 to March 6, 2022.

Women 25 to 34 catch up somewhat, earning 89.5% of men. However, women 35 to 44 earn 81.2% of men. And, 45 to 54 and 55 to 64 earn only about 77.5% of men. Finally, women 65 and older earn 80.4% of men.

Education seems to unintuitively have a negative effect on the wage gap. Women with less than a high school diploma earn 77.9% of men. Women with a high school diploma earn 76.2% of men.

You'll see lots of so-called empowerment messages along the lines of, "well, women just need to ask for more money!" That seems like victim-blaming to me. The above statistics show a persistent undervaluing of women's contributions compared to men. And, the devaluing worsens with age and education. So, compared to men, women, starting at a disadvantage, face further wage detriments for their increased experience and skills.

Given these facts, telling women to just ask for more, more often seems to detract from the main point: women consistently earn less than men.

In the current context, the point is that women need a plan because, given the wage disparity with men, it is even more important to make smart financial decisions.

2. longevity risk

Women tend to live longer than men. This means that the income disadvantage discussed above must on average translate into funding a longer time horizon.

Longevity risk is the risk of outliving one's retirement savings. Without proper planning, women are at higher risk face the prospect of severe cuts in their living standards during their retirement than men. When you run out of money during life, you also curtail your legacy plans.

At birth, a woman has a life expectancy on average of 81.28 years. Whereas at birth a man has an average life expectancy of 76.23 years. At age 67, a woman can on average expect to live until 86.1. A man at age 67 can on average expect to live until "only" 83.67.

Given this longer life expectancy, it should come as no surprise that women depend on Social Security for a larger proportion of their retirement income than men. In 2004, 69% of unmarried women depended on Social Security for half or more than their total income. In the same year, 41% of unmarried women depended on Social Security for 90% or more of their total income.

That rather shocking final statistic indicates that a large percentage of women are outliving their savings.

The sooner you have a wealth plan, the easier it is to secure your retirement and legacy goals.

3. delayed and shorter investing horizon

Given that women earn less, it should not surprise us that they start saving later than men for retirement. The median age when women start saving for retirement is 27 compared to 26 for men. (see page 24)

Getting paid systematically less means that women can only stretch their earnings so far. Turning to retirement savings would naturally fall below the more present priorities at that age of digging out of personal and student debt, saving for a home, possibly having a child, etc. Nonetheless, that year disadvantage in saving for retirement can compound until retirement and amount to possibly many tens of thousands of dollars of difference at retirement.

In addition, because women tend to face increased professional interruptions due to childcare decisions (or necessities), their retirement savings also falters. Covid has emphasized this stark issue. Women, more than men, faced the dilemma of giving up their work to care for their children when daycares and schools closed due to lockdowns. It is impossible to work effectively with a child who needs attention, guidance, and education. Unfortunately, the pandemic has set back women's labor participation by at least 30 years.

With a shorter investing horizon, women need a plan for securing, protecting, and growing their wealth.

4. more conservative & less confident investors

Taking appropriate risks with one's savings increases the likelihood of achieving one's financial goals. Saving for retirement is an important first step for success. The next step requires that you invest your savings appropriately to meet your goals. This likely means more exposure to equities than you might otherwise assume necessary.

"Women are shown to be significantly more risk-averse, with their risk aversion decreasing with competence, overconfidence, and knowledge: women's risk-aversion diminishes as their expertise increases." (see page 7)

With education, women can overcome their tendency towards risk-aversion which may be hampering their ability to meet their retirement and legacy goals. Having a plan can provide education, as well as having a game plan can reduce the chances of acting irrationally. For example, given a long-term investing horizon, one should generally ignore daily, weekly, monthly, or even seasonal market volatility. If you know that you are invested for the long-term, short or medium-term volatility should not matter much to you. By having a plan in place, you resist the temptation to let the emotions of the market dictate your strategy. With a plan in place, it is less likely that you will sell low and buy high.

5. suspicious of financial services industry

Women tend to distrust the financial service industry. It can be difficult to understand what one is purchasing, how much it will cost, and whether it is even appropriate.

Some companies and advisers overcomplicate financial products with the effect, if not the intention, of confusing the customer. If you don't understand something, you should demand a satisfactory explanation or walk away. If you feel pressured or that your questions are not being answered, that should be a red flag. There are no dumb questions when it comes to your money.

Going it alone might be better than falling into the grasp of a financial services vulture. But, having the advice of a trusted adviser who you know is working in your best interest has the potential to greatly increase your chances of achieving your financial goals.

6. sandwich generation burden

In addition to the above-referenced challenges that set women back financially compared to men, they also face the burden of having to care for both their children and parents. These additional responsibilities often occur at crucial periods of women's careers. The lack of a sufficient social safety net for both childcare and eldercare means that women often end up putting their professional ambitions on the back burner to step into these roles.

Having a plan in place means thinking through these issues. You can assess the potential risk of having to take on a caregiving role to the detriment of your career. With a plan in place for yourself, you have a greater ability to open up lines of communication with your family about the means and ability to create a care plan before an emergency.

By knowing how much and for how long you need to save to secure your own finances and retirement, you can approach your parents about their plans for retirement and possibly nursing care. With a plan in place, there will be fewer chances of surprises that may derail your financial security.

A difficult family conversation may have more influence on your ability to maintain your financial trajectory towards security and success than your portfolio allocation decisions.

Your ability to consistently maintain your savings over the years without interruption, on the one hand, and avoiding the unexpected need to tap into it in an emergency (e.g., to update your home for your parent to move in comfortably), can ensure your own retirement security. The lack of planning today has the potential to reverberate through several generations.

7. divorce challenges

After a divorce, women's standard of living tends to fall (25%), whilst men's tends to increase. (see page 27) In the midst of a divorce, emotions can cloud rational decision-making. And with so many decisions about how to divide different assets and liabilities, mistakes often more negatively affect women. Not only do women earn less and have fewer savings for the reasons explained above, but this vulnerability means that a mistake in the economic division can hurt more.

If you are in the midst of a divorce, consider getting the advice of a professional to help you navigate the many financial decisions you will have to make. If you are already divorced, you should create a new estate plan according to your new circumstances. It is an excellent time to prepare a wealth plan so you can assess where you are, where you want to go, and how to get there from here.

8. less likely to remarry

Women are less likely than men to remarry after a divorce. This is especially true when the divorce occurs after the age of 50. Divorce rates in later years are increasing. Because women live longer than men, there are fewer men over 50. So, men have an advantage in finding a new partner, just through demographics (i.e., there are more choices).

The financial vulnerability of women after divorce, generally, compounds with "greyer" divorces. Women, who may have sacrificed their careers to care for children, their parents, and their partners, may suddenly find themselves without sufficient skills to maintain their pre-divorce living standards. The cost of this unwaged labor falls disproportionately on women.

The efficiencies of combining households mean that the resources of two people can cost about 1/3rd less than if they lived separately. That is, in terms of cost, 1 + 1 = 1.6733. For example, you don't need two toasters, or other appliances if you are sharing a household. Therefore, because women are less likely to remarry, especially after a grey divorce, they do not benefit financially.

9. heightened elder abuse risk

Women are 2/3rds of elder abuse victims. Single, divorced, or widowed women face greater vulnerability due to potentially smaller social networks, lower standards of living, and perhaps higher risks of frailty. The responsibility of maintaining a household can overwhelm senior women when they must suddenly take care of everything (in addition to their prior contributions).

Increased reliance on strangers for help with everyday tasks - such as shopping, lawn maintenance, etc., can open the door to potential financial predators.

Aside from this risk, children perpetrate 1/3rd of elder abuse.

Having a plan in place that protects your finances in your later years can protect your retirement security and legacy goals. You can also include in your wealth plan the ability to protect your finances when you no longer want to or can. For instance, you could create a trust, and you could name a trustee that would handle your financial affairs, so you can focus on enjoying your golden years to the fullest. Having a trust also ensures that you have someone or an institution, looking after your finances. This could mitigate or ameliorate the damage that a potential predator could have on your finances.

10. more likely to pass single, divorced, or widowed

Because women live longer than men, they are more likely to live their final years alone. Even if they remarry after a divorce or their partner passes, they may outlive their subsequent partner. As such, older women tend to lack the emotional support that men have in their final years.

Without sufficient funds for the reasons explained above, it can be difficult to build and maintain the emotional support one requires when facing the challenges of frailty accompanying older age. For instance, living in the suburbs may be fine when you can drive. But, when one loses the confidence in or ability to drive, a suburban home can become like an island. The cost of making up for a lack of mobility may prove prohibitive. In addition, the thought of moving to a new mixed-use community may not only be out of reach financially but also anxiety-inducing. Change at a later age can be scary.

wealth planning empowers women

Having a wealth plan empowers you to overcome the various economic disadvantages women tend to face. As you can see from above, the disadvantages tend to compound. Working less, for less money, means saving less for less time. And due to women's relative longevity, women must stretch fewer savings over a longer time horizon.

If you would like to explore your own unique situation in more detail, contact me today and we can start wealth planning.

Regardless, please check out the FREE resources I have available elsewhere on my website that will get you moving in the right direction.

Law Office of Zachary D Kamykowski, PLLC

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